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Many a business found it difficult to move swiftly as the dollar weighed the ship down.
When the global economy sneezes, the rupee catches a cold. It happened in 2008 and it wasn't different last year. When the Greek crisis hit Europe, Standard & Poor's (S&P) downgraded the country's sovereign rating to at lowest in the world in May. Three months later, S&P downgraded the US' rating for the first time ever. And the rupee started sliding faster.
Many sectors were hit. Along with automobiles, airlines, telecom and steel, print, television, animation, production houses and DTH players too felt the pinch. The bad news was worse for some than for others.
Facing it
The impact of the depreciating rupee varied across sectors. The print industry was perhaps one of the most affected. Already burdened by the increasing cost of domestic newsprint prices, the increase in dollar prices meant an additional load.
Shantanu Bhanja, vice-president, HT Media says, "It has been a lean quarter (October-December) for the industry, with costs rising across the board. Most of our newsprint for our English language dailies is imported and they are dollar denominated costs. An expensive dollar has meant those prices have gone up proportionately." Newsprint prices today are hovering around $800 (it was $625 in May, 2011 and averaged $580 in 2010) a tonne.
For regional language dailies, the import component of the newsprint is around 60 per cent of the total requirement. However, most language dailies' print run is way higher than the English dailies. For instance, a leading Hindi daily would have a print run of more than 30 lakh copies, although it would have fewer pages.
Snowed under
The television broadcasting industry too was in the line of fire. New channels and companies, in the process of buying equipment, lost much money. Most of the equipment in television is imported - starting from set top boxes, servers and playout systems to software like graphics.
Television networks that were looking at expanding and buying new content - especially international - end up either bearing the loss or postponing plans, says a media pundit. "The situation became even more difficult for channels that buy imported software. However, for channels which are essentially foreign ones (like Disney), India becomes a cheaper market to operate in, with the same allocation of cost in the parent company's financials," says Ashutosh, COO, MyTV. MyTV is Cellcast Interactive India's social TV channel for India. Cellcast develops integrated participation content in the mobile and interactive TV market.
There are some who believe that the falling rupee will not have much effect on the television industry. "This is because local and foreign firms sign the pact well in advance. Moreover, we see a lot of negotiations that help us to balance the effect with the Indian rupee," says Monica Tata, general manager, Entertainment Networks, South Asia, Turner International India.
Similarly, even within the gaming industry, where revenue is shared through licensing all across the world, a fall in the value of the rupee leads to a proportional increase in earnings. Meanwhile, the costs remain unaffected since the labour and software used are local and are, hence, billed in rupees.
Hedging is often resorted to as a safe bet. Take for instance an Indian brand that chooses to create animation for its television commercial abroad. The studio strikes a deal with a foreign animation company to create the ad film for Rs. 50 lakh and decides to sell it for Rs. 60 lakh to the brand, thereby earning a profit of Rs. 10 lakh.
The company goes to the bank and writes a contract, in which the former offers to pay a higher price to buy the hypothetical $100,000 at a price of Rs. 54 per dollar when the then current price is Rs. 53 per dollar for the next three months. However, there is a risk here too - the fear that if the dollar becomes Rs. 45, one will still have to pay Rs. 54.
Pass the cost
Sometimes, an established brand may be ready to bear the extra costs, but not every time. Therefore, either the location has to change or the agency has to take the hit. "We try to make the deal in rupees so that we know exactly what kind of money we have to pay. Even if it gets to be a little more expensive, we can evade the fluctuations," says a top creative executive on the condition of anonymity.
Says Roopak Saluja, co-founder and managing director, Bang Bang Films and Jack in the Box Worldwide, "Given that we work outside the country often enough, our input costs definitely went up. As the rupee plummeted rather rapidly, several ongoing projects were hit."
Later, as the rupee stabilised at the Rs. 52-53 to a dollar levels, we were able to pass the cost increase to the client. But, of course, that made us less competitive. Luckily, we do a lot of work for international clients," says Saluja.
However some say that international networks wouldn't worry too much about this. "While the proportion in India might have dipped, the same will have gone up abroad with its India earnings. The rupee revenue of established networks has been inflated without the channels having to do anything at all. It is almost like taking money out of the left pocket and putting it in the right," says Paritosh Joshi, chief executive officer, STAR CJ Alive.
There could be further concerns when money is invested in content, especially when the size of the screen is immaterial. TV, cinema, computers and the mobile will attract equal volumes of content supply. There is optimism, however, as industry experts see this as a short-term aberration. "Although the world at large continues to stare at economic uncertainty in the face, India remains cautiously optimistic but vulnerable to the risks associated with a slowing global economy," observes Turner's Tata.
All said and done, 2011 will be a difficult year to forget.